What’s in a Credit Score: Your Credit Portfolio


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For the past couple of months, we’ve been brushing up on credit scores. At CreditKarma.com, credit scores are our bread-and-butter and we like to spread the knowledge with all of you Cute Geek readers.

Our first installment discussed how your credit utilization rate affects your credit score. Then we covered what factors in your credit history impact your score. For this final installment, we’ll be talking about how your credit portfolio factors into your credit score.

The two main pieces of your credit portfolio are the average age of your open credit lines and your total number of credit accounts.

Average Age of Open Credit Lines

When you opened your first line of credit, whether that was a credit card, student loan or auto loan, you established your credit history. The older your credit history, the more accurately a lender can assess your creditworthiness over time. The average age of your credit cards and other accounts is a strong indicator of your credit history. Your credit history length accounts for about 15 percent of your credit score.

For credit health: Be cautious when you’re considering closing your oldest credit card account. A closed account immediately impacts your credit score by shortening your credit history. Additionally, it also reduces your available credit, which means your utilization rate can be negatively affected. The good thing is that your credit age will lengthen with time, which positively impacts your credit score. However, you need to keep these accounts in good standing if you want that boost to your credit score.

Total Number of Credit Accounts

Consumers with more credit accounts generally have better credit scores because s variety of credit indicates that lenders are willing to extend credit to them. Also, having various types of credit, both revolving credit (like credit cards) and installment loans (like student loans), is a good sign of creditworthiness and the ability to manage multiple kinds of credit.

For credit health: Take a look at your different credit accounts. Do you have a good mix of credit accounts? If not, don’t rush to apply for new credit just to build credit. Instead, consider your life situation. If you use air travel a lot, but don’t have an airline rewards credit card, consider researching cards that will give you a return when you fly. If you’ll be in the market for a new car soon, know that an auto loan will also help diversify your credit portfolio and improve your credit mix. Just remember to do your research to know which auto loan would work best for you.

If you’re afraid your credit score won’t get you approved for a new line of credit, try a secured credit card to start building your credit now. A secured card requires a cash security deposit from you that functions as collateral if you default on your payment. Since you’re the one taking on the financial risk, a secured card typically offers guaranteed approval. Your new card will help you start building your credit so that, later on down the road, you can apply for different types of credit with your established credit history.

Bottom Line: Your credit portfolio indicates your creditworthiness by showing lenders that you have a good track record of managing different types of credit accounts over a long period of time. The more robust your credit portfolio, combined with a healthy credit history and responsible credit use, the better the impact on your credit score.

Credit Karma™ is a completely free credit management service that provides free credit scores, personalized savings recommendations, and financial education. We believe free access to one's credit score is a fundamental consumer right. Credit Karma helps more than 3 million consumers realize the everyday cost savings of having a good credit score. Visit us at www.creditkarma.com.